Rand rallies despite political challenges

The past week has seen the ZAR recover its losses after news of Pravin Gordhan’s summons for fraud caused unrest in the market place two weeks ago. The Rand reached a low of 16.95 against the Pound and a low of 13.82 to the USD during the course of the week.

After the political shenanigans over the last fortnight, local markets appeared to enjoy a period of relative calm this past week. The local currency was able to outperform many of its emerging market peers in the face of a relatively strong USD.

The IMF has written a paper detailing what drives ZAR volatility in the markets. Amongst economic surprises, local political uncertainty and commodity price volatility, the role of global risk perception was assessed. The paper reported that Rand volatility is mainly driven by these factors. This makes it clear that unless we see some political stability, there is a real chance a possible downgrade could be back on the cards.

What to look out for this week: South Africans are keeping a close eye on any new developments with Pravin Gordhan as he continues to shield himself from the onslaught and tries to guide the South African economy along a more fiscally responsible path. As it sits, we should be looking forward to a relatively calm market for the Rand – bar any further economic surprises. We have a few data releases happening around the globe this week and speeches from both ECB President Draghi and BOE’s Governor Carney to look forward to.